Bus 630 Week 3 Dq 1 Fixed Labor

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Far North Telecom, Ltd., of Ontario, has organized a new division to manufacture and sell specialty cellular telephones.  The division’s monthly costs are shown in the table below.  Far North Telecom regards all of its workers as full-time employees and the company has a long-standing no layoff policy.  Furthermore, production is highly automated.  Accordingly, the company includes its labor costs in its fixed manufacturing overhead.  The cellular phones sell for $150 each.  During September, the first month of operations, the following activity was recorded: 12,000 units produced, 10,000 units sold.  Comment on the five questions below the table.  Respond to at least two of your fellow students’ postings. 

|Manufacturing costs:                                     |                      |
|Variable costs per unit:                                 |                      |
|Direct Materials                                         |$48                   |
|Variable manufacturing overhead                         |$2                     |
|Fixed manufacturing overhead costs (total)               |$360,000               |
|Selling and administration costs:                       |                      |
|Variable                                                 |12% of sales           |
|Fixed (total)                                           |$470,000               |

a.  Compute the unit product cost under:
         i.  absorption costing 
        ii.  variable costing

b.  Prepare an absorption costing income statement for September

c.  Prepare a contribution format income statement for September using variable costing.

d.  Assume that the company must obtain additional financing in order to continue operations.  As a member of top management, would you prefer to...